What is the Outlook for the US Economy ?
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What is the Outlook for What is the Outlook for the US Economy ?the US Economy ?
Status of Key Economic VariablesStatus of Key Economic Variables
OIL - Prospect of war with Iraq pushed prices briefly over $30 a barrel at mid-week. TRADE – the USA had a $130bn Q2 trade deficit, above the expected $126 bn.
Type Current Previous Interpretation & Outlook
Consumer spending August: +0.8%
Jul: +1.1%, Jun: +1.4%
Greater than expected growth, particularly in non-autos (home-furnishing, general merchandise). Mortgage refinancing is driving spending, could drop if income levels and unemployment doesn't improve.
GDP: 2Q02 +1.1% +5.0% Slowing growth in 2nd half 2002.
Productivity: 2Q02 Business & Non-farm
+1.6% Q-Q growth
Productivity Growth keeps inflation in check.
Productivity: 2Q02 Manufacturing
+4.3% Q-Q growth
Housing Starts-July -2.2% n/a Declining - Suggest continued strength in housing sales/prices.
Durable goods-new orders-July
+8.7% -4.5% Largest increase since Oct-01. Also inventories of durable goods declined for the 18th consecutive month * Is business spending starting?
AUGUST 2002 ISM BUSINESS SURVEY AT A GLANCE
SeriesIndex
DirectionAug vs Jul
Rate of ChangeAug vs Jul
PMI 50.5 Growing Same
New Orders 49.7 Contracting From Growing
Production 55.6 Growing Slower
Employment 45.8 Contracting Slower
Supplier Deliveries 53.4 Slowing Slower
Inventories 45.2 Contracting Slower
Customers' Inventories 42.5 Too Low Same
Prices 61.5 Increasing Slower
Backlog of Orders 45.0 Contracting Faster
New Export Orders 52.7 Growing Faster
Imports 51.9 Growing Slower
Economic SnapshotEconomic Snapshot
Last weeks Greenspan Speech:Last weeks Greenspan Speech:Suggested the economy continues to face challenges, urged Congress to do a better job of trimming national budget deficit.
"The economy appears to have withstood this set of blows well," including stock market declines and terrorist attacks "although the depressing effects still linger,“
Greenspan's speech and a Labor Department report of a five-month high for jobless claims led to a big sell-off on Wall Street. - "The market is now assuming the Fed won't do anything in September"
Employment: Negative to Mixed on a Employment: Negative to Mixed on a jobs led recoveryjobs led recovery
U.S. unemployment dipped to a five-month low U.S. unemployment dipped to a five-month low in August of 5.7%, down from July's 5.9% and in August of 5.7%, down from July's 5.9% and lowest since 5.7% in Marchlowest since 5.7% in March
While unemployment decreased, jobs growth While unemployment decreased, jobs growth of 39,000 was driven entirely by government of 39,000 was driven entirely by government hiring and was still a mere fraction of the hiring and was still a mere fraction of the 100,000 to 150,000 pace of growth that 100,000 to 150,000 pace of growth that economists say will be needed to signal the job economists say will be needed to signal the job market is in a solid recoverymarket is in a solid recovery
Long-Term Joblessness rose by 50% over the Long-Term Joblessness rose by 50% over the last yearlast year
Industry SnapshotIndustry Snapshot
AirlinesAirlines Struggling– not expecting quick Struggling– not expecting quick turnaroundturnaround
AutomotiveAutomotive Strong - driven largely by Strong - driven largely by refinancingrefinancing
ManufacturManufacturinging Stable, but slowingStable, but slowing
TechnologyTechnology Expect depressed to continue to Expect depressed to continue to 2003 2003
Tourism Tourism MixedMixed
The Fed's own beige book study released Wednesday showed sporadic growth continues in various regions and industries, although it has slowed in recent weeks - particularly the manufacturing sector.
America is now in the midst of a America is now in the midst of a Property Property Bubble.Bubble.
US house prices have "risen more in real US house prices have "risen more in real terms since 1997 than in any previous five terms since 1997 than in any previous five year period since 1945." year period since 1945."
House prices have risen by 30% since 1995- House prices have risen by 30% since 1995- three times the 10% rise in the rental index three times the 10% rise in the rental index over that same period. This gap between over that same period. This gap between house-price and rental inflation has never house-price and rental inflation has never been wider.been wider.
““If that’s not a bubble, I don’t know what is.” If that’s not a bubble, I don’t know what is.” – Steven Roach Chief Economist, Morgan – Steven Roach Chief Economist, Morgan StanleyStanley
America’s Property Bubble is America’s Property Bubble is the next sector to watch:the next sector to watch:
Positives for the US EconomyPositives for the US Economy
High consumer High consumer spending spending (vehicles, home (vehicles, home furnishings)furnishings)
Strong productivity Strong productivity trendstrends
Low int. rate Low int. rate environmentenvironment
Low inflationLow inflation
Shakeout has already occurred in a number of Shakeout has already occurred in a number of areas:areas:
1.1. NasdaqNasdaq was the first to go was the first to go2.2. followed by followed by Information TechnologyInformation Technology3.3. and then and then TelecomTelecom
Future correction are expected in the following:Future correction are expected in the following:1.1. DollarDollar bubble bubble2.2. PropertyProperty bubble bubble3.3. biggest bubble of them all - the biggest bubble of them all - the American ConsumerAmerican Consumer
What are going to be the What are going to be the future problem areas?future problem areas?
Potential Destabilizes of US EconomyPotential Destabilizes of US Economy
War with Iraq - Oil Price Spike and War with Iraq - Oil Price Spike and Geopolitical StabilityGeopolitical Stability
Deterioration in consumer spendingDeterioration in consumer spending
Slowdown in job growth Slowdown in job growth
Stagnant or deteriorating corporate Stagnant or deteriorating corporate earnings that could lead to a earnings that could lead to a slowdown in hiring and capital slowdown in hiring and capital spendingspending
Bursting of Property BubbleBursting of Property Bubble